Quinn revises income tax proposal, House votes to fully fund pensions

Gov. Pat Quinn is floating a new version of his income tax plan that will produce more money for state expenses, but cut the amount taxpayers can claim as exemptions.

Doug Finke

Gov. Pat Quinn is floating a new version of his income tax plan that will produce more money for state expenses, but cut the amount taxpayers can claim as exemptions.

At the same time, the Illinois House has voted to fully fund state pensions, essentially taking more than $2 billion that Quinn wanted to spend on other state programs and using it to pay down pension debt.

With his initial plan to raise the state income tax by 50 percent faltering in the General Assembly, Quinn offered a retooled version. It still raises the tax rate paid by individuals from 3 percent to 4.5 percent. But instead of raising the standard exemption from its current $2,000 to $6,000, as Quinn originally proposed, the new version only increases the exemption to $3,000.

Quinn asked for the higher exemption to cushion the blow of raising the tax rate by 50 percent. However, lawmakers didn't embrace the idea. They worried about casting a politically unpopular vote to raise taxes and then seeing a large part of the revenue used for tax relief rather than to pay for state programs.

Although the new version limits the person exemption, it doubles the earned income tax credit and the property tax credit (now capped at $500).

Quinn's administration said the new version will produce $3.7 billion to $4 billion that can be used for state programs, compared to about $3.2 billion under the original version.

"It's still not enough money," said Sen. Donne Trotter, D-Chicago, a leading budget negotiator. "It still only gives us $3 billion, which doesn't cover the hole."

Estimates of the state's budget deficit are well over $11 billion.

Senate President John Cullerton, D-Chicago, said there is not enough support for a tax increase among Democrats to pass one without help from Republicans. Senate Minority Leader Christine Radogno, R-Lemont, said Senate Republicans are united against raising taxes.

"When they have a problem, their (Democrats) impulse is to raise taxes, raise taxes, raise taxes," Radogno said. "Our impulse is to cut, reinvent government, grow the economy."

"A lot of issues need to be addressed before we raise taxes," said Sen. Dale Risinger, R-Peoria, who said Democrats didn't include the GOP in budget discussions until they decided Republican votes were needed.

"I'm not overly optimistic, to be honest with you, that we are going to reach a middle ground and pass a budget before the 31st," said Sen. John Sullivan, D-Rushville.

After May 31, it takes a supermajority vote to pass a budget.

Meanwhile, House Speaker Michael Madigan, D-Chicago, produced a bill Wednesday that calls for the state to make a full payment to the five state-funded pension systems. Quinn wanted to revamp the systems and use money that was going to be saved in the future to plug budget holes now.

Several lawmakers complained that the bill will divert $2.2 billion into pensions that could be used for state services, but no one voted against the legislation, although 14 voted "present."

Madigan said he sponsored the bill because there was "very minimal" support among House Democrats to pay less than the full amount into the pension systems this spring. However, the bill could also put more pressure on lawmakers to support an income tax hike rather than see state programs face deeper cuts.

Madigan acknowledged, though, that even raising income taxes as Quinn wants won't be enough to cover the entire state deficit.

"There would still be cuts," Madigan told the House.

Madigan also told the House that public employee labor unions will talk over the summer about changes to pension systems sought by Quinn. The governor has proposed reducing benefits for future employees and charging current participants more for the benefit to save the state money and reduce the crushing pension funds debt.

"We're just putting our heads in the sand if we don't recognize that the current benefits levels are unsustainable," Madigan said.

The bill to fully fund pensions is only part of the ongoing maneuvering between the governor and four legislative leaders over crafting a new sate budget. The House has approved more than $16 billion of spending bills that lawmakers said will keep basic state services operating if budget talks break down.

Doug Finke can be reached at (217) 788-1527 or doug.finke@sj-r.com.

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